401(k) plans are a popular type of retirement savings plan. The way it works is an employee of a company will designate how much of their salary they want to contribute to their retirement and the employer will oftentimes offer a company match. The company offers this benefit in order to attract the best candidates for a position and also for retention purposes.
The most attractive feature of this plan is that the contributions are taken from the individual's salary before any taxes are assessed. The funds also grow tax-free until a withdrawal is made. As with most things there are advantages and disadvantages and 401(k)s are no exception. Some of the major advantages of a 401(k) are that there is a company match.
Chief among the advantages of contributing to a 401(k) plan is the company match. What this means is an employer will give an employee 'free' money just for their participation in the plan. Another advantage is that the funds are deposited into the 401(k) account before any federal taxes are assessed. Another advantage is, the employee gets to pick what securities to allocate their contributions
Drawbacks to a 401(k) are, unless it is a qualified distribution, then withdrawing funds from a 401(k) can be costly. If the withdrawal is a loan, an individual would have to pay interest, plus the penalty. 401(k)s are not protected by the Pension Benefit Guaranty Corporation (PBGC) which insures your contributions even if the market does not outperform any employer projections.
59.5 is the IRS appointed age when an individual can begin making qualified distributions from the 401(k) retirement account. Again, please note that 401(k)s are a very desirable and popular retirement savings plan but an individual should weigh the pros and cons before deciding to participate. It is a completely self-directed retirement fund and so it may not a good option.
The most attractive feature of this plan is that the contributions are taken from the individual's salary before any taxes are assessed. The funds also grow tax-free until a withdrawal is made. As with most things there are advantages and disadvantages and 401(k)s are no exception. Some of the major advantages of a 401(k) are that there is a company match.
Chief among the advantages of contributing to a 401(k) plan is the company match. What this means is an employer will give an employee 'free' money just for their participation in the plan. Another advantage is that the funds are deposited into the 401(k) account before any federal taxes are assessed. Another advantage is, the employee gets to pick what securities to allocate their contributions
Drawbacks to a 401(k) are, unless it is a qualified distribution, then withdrawing funds from a 401(k) can be costly. If the withdrawal is a loan, an individual would have to pay interest, plus the penalty. 401(k)s are not protected by the Pension Benefit Guaranty Corporation (PBGC) which insures your contributions even if the market does not outperform any employer projections.
59.5 is the IRS appointed age when an individual can begin making qualified distributions from the 401(k) retirement account. Again, please note that 401(k)s are a very desirable and popular retirement savings plan but an individual should weigh the pros and cons before deciding to participate. It is a completely self-directed retirement fund and so it may not a good option.
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If you're interested in learning more about your retirement planning choices, be sure to visit Christopher Stanley's website IRA vs. 401k, where you can research more about different retirement planning choices and constraints.